Episode 248 – RP Live Presents: Inside a Failed State Q&A with Michael Hudson

Macro N Cheese – Episode 248
RP Live Presents: Inside a Failed State Q&A with Michael Hudson
October 28, 2023 

 

[00:00:05] Virginia Cotts: My name’s Virginia with Real Progressives. With me is my co-host Commie John and our good friend Michael Hudson, our guest of honor tonight.  

[00:00:14] John Siener: Thanks everybody for coming, and a big shout out to the Michael Hudson Patreon crew. I see some of them in the chat. Thanks for coming, guys. If you’re not familiar, we’re Real Progressives. We have a website, real progressives.org, and it’s just a treasure trove of all kinds of resources, revolutionary stuff you’re not going to find anywhere else. Including our flagship podcast, Macro N Cheese, which drops every Saturday morning at 8:00 AM Eastern. We’re approaching 250 episodes and every one of them is just a… it’s an education in an hour. 

Also, Steve Grumbine, here has a weekly Monday, Wednesday, Friday show called The Rogue Scholar at noon Eastern. Again, check us out @realprogressives.org. We have a Patreon, which is patreon.com/realprogressives, if you feel like chipping in a few bucks to help the cause. Check us out on Facebook, TikTok, Instagram, everywhere else. We’re all over the place. And I think that’s all I got.  

I’m going to hand it over to Momrade to introduce our guest. Go ahead, Momrade. Let’s do this.  

[00:01:48] Cotts: Okay. I’m going to tell you about Michael and how to support his work.  

Michael Hudson is president of the Institute for the Study of Long-Term Economic Trends. He’s a Wall Street financial analyst, distinguished research professor of economics at UMKC, that’s University of Missouri, Kansas City. All of us MMTers are well familiar with that institution. He’s the author of Super Imperialism: The Economic Strategy of American Empire; …and forgive them their debts; J is for Junk Economics; The Destiny of Civilization: Finance Capitalism, Industrial Capitalism, or Socialism; and many, many more. You can purchase the books I just mentioned on the Real Progressives website. We are part of bookshop.org. Go to our website, use the media dropdown arrow, and you’ll see RP Bookshop as one of the selections. 

Now, Michael’s work you can find on his website, michael-hudson.com. Actually, if you just enter Michael Hudson into Google search, it’s the first thing that comes up. You can support Michael on Patreon, which is patreon.com/michaelhudson. And Michael does a Q&A, very much like this one, four times a year for his Patreon supporters. It’s a lot of fun. Some of us have been going, and it’s a great chance again to ask him questions. As you all know, Michael is so unique and has such a unique perspective on the world that really helps us draw the connections. He’s definitely worth listening to. So, Michael, welcome.  

[00:03:40] Michael Hudson: Thanks for having me.  

[00:03:42] Cotts: Great. We’re going to be talking about the US as a failed state. You just did an interview with Steve Grumbine on our Macro N Cheese podcast, and I hope everybody had a chance to listen to that because we want to stay within that topic, within that subject area. We have friends here from March for Medicare for All, and hopefully National Single Payer. And so one of the things some of us are very focused on is how to discuss healthcare, how to discuss universal single payer healthcare for the United States. And Michael, I’m going to start with a question that we hear all the time when we talk about that. 

The first thing you come up against is “How are you going to pay for it?” “You’re going to have to raise taxes!” We want to know how to answer that question because we know that the US government doesn’t need our tax dollars to pay for social programs, but most people believe it does. 

[00:04:53] Hudson: There’s sort of two aspects to the question now. First about the healthcare. Already in the 19th century the idea of public healthcare was a conservative idea. Benjamin Disraeli said: Health — all is health. And he realized that if the government would provide healthcare at public expense, labor would be much healthier. 

Its productivity would go up. And the industrial capitalists of England would have to pay less money on balance for healthy labor than unhealthy labor. Same thing that happened in the United States. It was protectionists and the Republicans that backed public investment in health labor on the grounds that if the public sector financed health labor, then the private investors, the capitalists, would not have to pay for healthcare and the workers would not have to pay for healthcare. 

Privatizing healthcare means that both the corporate sector and the employers have to pay for the healthcare, and that raises the minimum wage that employers have to pay. And the fact that healthcare is 18% of America’s GDP helps price America out of the world market. What Americans pay in healthcare is larger than labor in many African or Latin American or Asian countries get paid. 

And there is no way that the United States can re-industrialize as long as it’s leaving healthcare, education, and other basic needs as privatized to be paid out of the labor budget instead of by the government. So then we get to the question that you raised. How do the governments do it? 

Well, the governments can finance healthcare in the same way that they finance wars. They can simply print the money. If they borrow the money from wealthy investors or from banks simply creating credit on their keyboards, the government then have to pay interest. 

But just like banks can create a loan credit on a keyboard when you go into a bank, the government can do the same thing. Just as the government of America financed a civil war by printing greenbacks, it can print the money to pay for the healthcare. 

And in fact, it was first Dick Cheney and then Donald Trump that said, “deficits don’t matter.” Cheney and Trump said, “we can pay as much as we want for the military budget simply by monetizing it. By having the Federal Reserve create money.” We at UMKC have suggested the Treasury could simply print a coin about this big of platinum and say, this coin is worth a trillion dollars. 

We’re depositing it in the Fed to draw on, and all of a sudden you have a trillion dollars borrowing power. That, in effect, is what the US already has been doing under the Bush tax cuts and the Trump tax cuts. And Biden, a Democrat, said “we have to keep the tax cuts that the Republicans do, or else the voters won’t support us.” 

It’s basically the Democrats that have been fighting against the idea that you can simply print the money if you’re the government, just like a commercial bank creates credit. And the problem is, right now you have the Democrats, at least President Biden, saying “we’re going to have to vastly increase the military budget in order to replace all of the armaments that have been used up in the war against Russia in Ukraine, and because this is going to increase military spending, we’ve got to cut back social spending.” 

And that basically is the Democratic platform and it’s completely unnecessary. It’s a pretense that the country can afford armaments, can afford tax cuts for the wealthiest families, but it cannot afford any kind of social spending for people who have less wealth than the top 10% of the population.  

And you’re going to have… this September, all of the suspension of debt service for student loans is going to end. And you’re all of a sudden going to have a huge burden on families that have already been strapped for debt with their credit card debt, their mortgage debt, their automobile loans, their medical payments. 

Now they’re going to have to all of a sudden resume paying the student loans, that President Biden took the lead in making sure that these loans could not be wiped out in bankruptcy, unlike all other loans. The debts to the United States under President Biden’s leadership in the early 2000s, are treated as sacrosanct. 

And this really shows you that without a change in the monetary philosophy, how is money created, you’re going to make the country a failed state because there’s no way that America can re-industrialize, and at the same time make labor pay these added expenses for healthcare, education, and other basic social needs. 

A heck of a tool for employers, to have healthcare to hold over your head. And when you hear we’re going to have to raise taxes, half the people shut down and they’re like, ‘ah, I’m not interested’. And if they understood that we don’t have to raise taxes to get healthcare… 

Well, Stephanie Kelton has explained all this when she was working for  

Bernie Sanders, and what’s called the “Progressive Caucus” used to support it before they all jumped on board with the Pentagon. And the Progressive Caucus now says, well, yeah, let’s fight Russia. 

They’ve, completely dropped their ”progressiveness”, and what passed for the Progressive Caucus and the left in America is now on the right wing of the spectrum. And it’s the conservatives, the Donald Trump, the Cheney, the right wing Republicans that are realizing that you don’t have to tax the the population in order to run deficit spending. 

  

[00:11:29] Cotts: I have to add something to that question, and this is really for me because I’m very confused about how the Federal Reserve works. And you, in your interview with Steve Grumbine on Macro N Cheese, you referred to borrowing – from other countries, from banks, from billionaires – to pay for deficit spending. 

I know you don’t mean borrowing, like if I borrowed $10 from you for a hamburger. I know it’s a different kind of borrowing because it’s not literally that they need it. Or like a city or company issuing bonds because they need to borrow money. But can you explain it so people understand that the language is used in different ways? It’s very confusing for laypeople? 

[00:12:25] Hudson: Well, when laypeople, and when your audience goes to the bank, and they put a deposit in their savings account or their checking account, they don’t say “the bank is borrowing from me.” They think of themselves as saving. The United States doesn’t have to borrow a penny from foreign countries in euros or yen or pesos or any other currency. 

But it does have a very different problem that has nothing to do with borrowing. The United States is running a huge balance of payments deficit. And since the Korean War, 1950, almost the entire balance of payments deficit has been military in character. So what happens is the United States spends these dollars abroad, throughout its 800 bases throughout the world. 

These bases, all this costs money and they have to buy, they have to spend it locally. And the local recipients of this money, take the dollars and they remit them to their head offices in France or Germany or Japan or China. And the central banks of these countries say, ‘what are we going to do with all these dollar payments?’ 

Well there’s very little that they can do with them. And so the only thing they can do to keep safe with these payments is to deposit them in the United States. But they don’t want to deposit them in commercial banks because they could put it in Silicon Valley Bank and just be wiped out. So what they do is, they spend their dollars and their international financial reserves by buying Treasury bonds or Treasury bills. 

And so the United States has to provide a vehicle for these countries to save all of the surplus dollars that the United States spends militarily. So the United States acts as a savings bank for foreign central banks that receive more dollars than they spend. And the active factor in all this is the US deficit pumps dollars into the economy, the dollars have to come back to the United States, and the United States accepts them as a deposit. And the deposit is a US Treasury obligation that’s held by them.  

So it’s not that the US Treasury says “We have to go out and borrow money from you guys.” The problem is that these guys say, “Well, we have a surplus of dollars, we don’t want the dollars because we think you’re crooks. We’ve seen you just grab all of Russia’s savings. We’ve seen you tell England ‘grab all of Venezuela’s gold.’ You guys are pirates. We don’t want to hold dollars anymore. We want to de-dollarize.”  

So, what they’re doing is winding down their dollar deposits here. They don’t want to hold their dollars in the United States because President Biden says, “the ‘yellow peril’ is our number one enemy.” So China says, “Well, if we’re their number one enemy, and he says it again and again and again, week after week, then they’re going to treat us like they treat Russia. We’d better get all our money out of the United States. We’d better de-dollarize, and we’d better work with Russia, Iran, and the BRICS countries to have some alternative way so that we don’t have to use the United States as a savings bank for these garbage dollars, they put military bases around us, where they say they’re going to bomb us if we don’t follow policies that President Biden’s advisors support.”  

So, instead of borrowing from them, they’re trying to decouple, they’re trying to de-dollarize. The world is dividing into really two parts. The United States and Europe, which the head of the European Union, Borrell, calls “the garden.” And there’s the rest of the world, which he calls “the jungle.” Which shows the kind of racist character that the Anglo-Saxon and the white population has toward the global majority. Which is the term that President Putin and others have been using for the majority of people. 

So anyway, I’ve diverged a little bit but we don’t borrow, other people have used us as a bank. Just as when you go to a bank, put money in your savings deposit, the bank doesn’t borrow from you, you’re lending money to the bank. Other countries are lending money to the United States. 

They want to stop doing that because the United States is doing very bad things with the money they’re lending. The United States is surrounding them with military and, say we’re going to use force. We’re going to use it to hurt you because you’re our enemy. And if the United States declares all the rest of the world to be “the jungle,” the enemy, you can imagine the motivation that foreign central banks and governments have to break free of the dollar. 

My book Super Imperialism explains all of the balance of payments aspect to this.  

[00:17:32] Cotts: Michael, when you say other countries don’t want to, quote/unquote “lend”, but isn’t it also banks and billionaires? I mean the way Stephanie Kelton explains it, or describes it, is that we are basically giving these Treasury bonds as free interest to the banks and billionaires.  

[00:17:56] Hudson: Yes.  

[00:17:57] Cotts: And, so it, again, it’s not really ‘lending.’  

[00:18:00] Hudson: But your question was about the balance of payments, and I think you said, do we borrow from other countries? Stephanie tries to keep the discussion within the domestic economy so we don’t complicate things by talking about the balance of payments. 

But Stephanie’s quite right. Why should the government borrow from the billionaires and pay them rising interest rates, when the government can simply print the money? 

During the Civil War, it didn’t borrow because there wasn’t any money to borrow. And when World War I broke out all, as I think I said on Steve’s show the other day, all of the observers in Germany, France, England, said, well the war can’t last more than six months because there’s no money. 

Nobody can lend, not enough money to lend us. And yet the war went on year after year by all of the governments simply printing the money. That’s how, if you can do that to finance wars, why can’t you do that to finance education, healthcare, and social spending? Why do you only create money to fight other countries instead of help your own economy? 

Well, the answer is class war.  

[00:19:11] Siener: Absolutely. 

Right now we’re going to go to Thomas Jordan, who’s got a couple of bangers.  

[00:19:17] Thomas Jordan: Hi. Thank you guys. And, Michael, I’m a big fan of your work and thank you for all that you do. It’s kind of a general question. 

The first one is, do you think there’ll ever come a point where we can actually, the Treasury, can just reset the national debt? And do you see the US dollar collapsing in the near future?  

[00:19:37] Hudson: So, I don’t see the US dollar collapsing. It’s going to continue to be used no matter what. And we’re certainly getting a huge inflow from Europe. 

What’s called the ‘War in Ukraine’ is really America’s war against Europe to basically financially colonize it. And we’ve made Europe much more dependent on the United States for arms, for energy for just about anything. We’ve imposed special tariffs on European industrial exports. 

So we’re going to be getting a huge inflow from Europe, which is a failed continent when you talk about it economically. Regarding writing down the debt, there’s no particular need to write down the debt. The debt is more or less sacrosanct and because the debt is owed overwhelmingly to the wealthiest people, and the the wealthiest people are the donor class.  

The wealthiest people finance who’s going to be on the Supreme Court. Who’s going to be running for Congress. Who are the politicians that we’re going to back. Who are the judges that we’re going to back. You can be sure that the government may not pay social security to the workers and the wage earners, it may not pay Medicare and Medicaid, but the one thing that is sacrosanct is debts owed to the upper 10%. 

[00:21:05] Siener: Absolutely. we’ve got one here from William Gills.  

 William asks, I live in Ecuador, which uses the dollar, the US dollar. What are the pros and cons of changing back to its own currency? The sucre, I hope I’m pronouncing that right. Also, Argentina has several exchange rates for its peso: the official rate, a parallel unofficial rate, a rate for the agriculture sector for soya exports. 

Some want Argentina to get rid of the peso and use only the dollar as in Ecuador. Is that a good idea?  

[00:21:40] Hudson: That’s a destructive idea. Argentina used to use the dollar. What that means is that for every dollar of its currency, Argentina has to obtain these dollars. 

How does it obtain these dollars that it’s going to use as its currency? Either it exports more grain or beef, or it sells off its public domain. It sells off its land, it sells off its public utilities to get the dollars. 

Using the dollar, or any foreign currency, means that it has to essentially give exports and sell its economy for nothing, just to use the foreign dollars that it could use itself. Same thing with Ecuador. Ecuador did have a left-wing president but you had him replaced by a right-wing person that said all of Ecuador’s export proceeds have to be turned over to the US Treasury for its international spending, mainly on war. Ecuador is going to give its entire economic surplus to finance America’s Cold War. 

Argentina, the right wing there says, let’s use our surplus to finance the Cold War. Let’s not create our own economy. We have to create, we have to maintain austerity here if we really want to crush the working class and the agricultural class and prevent the economy from getting rich, so that we can lord it over the rest of the economy. 

That was discussed way back in their failed dollarization policy of the 1990s. And it’s the same thing. No country should borrow in another country’s currency as Argentina and Ecuador did. They can’t simply create their own credit. 

If you use dollars, then the government can’t do what we were just talking about. If you use dollars as your currency, you can’t just print them to spend, because you can’t create dollars. Only the United States can create dollars. And if you use your own currency, pesos or whatever, then of you can create as many as you want, which is the way things should be. 

So using the dollar is giving up national sovereignty. And one of the classic definitions of a state is: a state has the power to create its own money. Giving up that power means that Argentina and Ecuador are not states. They’re colonies. Financial colonies and monetary colonies of the United States, not independent states. 

[00:24:22] Cotts: Thank you.  

I’m going to call on our friend Flo. Florencia. Who, Michael, you met at one of our chats after your Patreon Q&A. She’s the one who’s from the Vancouver area in Canada.  

[00:24:41] Hudson: Oh, right.  

[00:24:42] Florencia Schade: Yes. Hello Michael. 

So, the Canadian Trotskyist here. You answered actually quite a few of my questions already that I had in the Q&A about the balance of payments issue. You know, any more that you want to say on that, I think is always helpful.  

 I’d like to hear more on that, but also I think I heard you say once that QE didn’t add to the money supply, but shifted things around the balance sheet. So I was curious, what’s the difference between QE and ‘printing money’, and what do you mean when you say ‘printing money’?  

[00:25:17] Hudson: Well quantitative easing was simply creating credit at the Federal Reserve for banks. 

The banks were able to turn over their assets as deposits at the Federal Reserve. They didn’t deposit money at the Fed. They turned over their mortgages, their junk bonds, all sorts of things, and got credit at the original purchase price from the Fed. And that way, the Fed kept extending the credit to the banks to go out and lend more and more. 

And because the assets equal the liability in this kind of swap, it’s not a creation of the money supply. It’s not money that’s going to be spent on goods and services. It was simply a balance sheet swap of government… of a deposit of one form for an asset in another form. Balance sets balance. And money… there was no increase in the money supply that people think of. The banks did have more credit, but the credits that banks create were mortgage credit and credits to buy stocks and bonds. There was very little bank credit for actual spending on goods and services. So the important thing to understand, that you’re not taught in school, is the economy is in two sectors: 

The production and consumption sector that you all think of as the real economy. And there’s the economy of property, and debt, and loans. And the financial sector of assets and liabilities, of debts and what people owe, is superimposed on this basic real economy of production and consumption. 

And money is spent in the real economy, but bank credit is spent really just to increase the debt overhead in the economy. The overhead of mortgage debt, of corporate debt, and speculative debt. Banks will lend money to private capital companies to loot the economy and drive them bankrupt. 

That’s one of the most profitable sectors of bank lending. And the financial sector is basically predatory on the real economy. And people think that, oh, if quantitative easing creates credit, it must be inflationary. It’s actually deflationary because the banks use all of this credit they have to increase debt on the economy, and the debts have to be paid, not only with interest but amortization. 

And so the more bank credit there is, the more debt there is because a bank credit is somebody else’s debt. Namely the people who buy houses on mortgage, or corporate raiders who borrow to buy companies and empty them out. So you have to understand how the economic system is multi-layered. 

And that’s not what is taught in school in classical economics. They don’t acknowledge that there are… there’s the asset and debt economy – the balance sheet economy – and the goods and service economy. 

[00:28:39] Schade: Thank you very much.  

[00:28:40] Hudson: I’m sure that it is very complicated. Randy Wray and the Levy Institute have given an example of tracing where did all this quantitative easing money under Obama go? And you can follow it all in the very detailed analysis that he has. 

Wall Street on Parade is another site that explains all of this. It’s very technical and it’s… I could just say no matter how clearly I say it, you have to rewire your brain to think of to think in terms of the two-sector economy.  

[00:29:19] Siener: Excellent. Next up we have a friend of the show, Elizabeth, with a question. 

Can you please explain how de-dollarization in the geopolitical economy does not impact domestic spending? I.e., investing in healthcare, education, housing, climate, infrastructure, similar to Roosevelt’s New Deal. And also, Christina asks: for the record, how much does de-dollarization affect regular Americans in the USA? Or is it irrelevant to the required fix to our domestic…  

[00:29:49] Hudson: It’s easier to think of it as irrelevant than to spend the enormous difficulty of trying to figure out the indirect effects. 

There is no direct effect at all. Any effect is indirect. De-dollarization isn’t simply moving out of the dollar, it’s to create a whole different kind of economy for the rest of the world. It’s a different economic philosophy. Basically it’s a socialist economy versus a neo-feudal economy. 

It’s an economy where governments are trading among themselves. It’s an economy where governments are trying to steer their economic growth to benefit the overall population, to benefit the wage earning population, to make labor more productive. It’s a mixed economy where the governments are providing the basic infrastructure for health, education, transportation, communications, instead of leaving all of this privatized. So it is part of the world dividing into America, which is basically Margaret Thatcher and Ronald Reagan. 

If you want to see why America’s failing, the topic of this show, look at what happened to England after Margaret Thatcher and the much more reactionary left wing of the spectrum under Tony Blair. Under Labour, the left wing was much more anti-labor and vicious and pro-financial than the conservatives ever could have been. 

 If you’re really going to fight against labor and against the working class, you need a President Obama to do that. You need a President Clinton to do that. You need a Joe Biden to do that. Only the Democrats can disable the labor union opposition and labor’s opposition to really crush it. 

And you’re having right now in the United States, a class war that’s the most vicious since the late 19th century. And the result is that the country, the economy, is grinding to a halt. Other countries are trying to avoid forcing their labor force, their wage earners, to break even by going into debt. By going into debt for their healthcare, for their education, because they provide healthcare and education at public expense. They’re trying to prevent a housing bubble. They’re trying to, essentially, use the government to promote economic growth instead of simply to suck the surplus out of the economy and give it to the 10% of the people who are the donor class. So it’s a different… it’s not only moving out of the dollars as such, it’s a different economic philosophy.  

And the result is, you’re seeing in the last couple of days in the speeches with China, saying, well, wait a minute, you just had Janet Yellen, probably the most vicious woman official since Madeline Albright, go to China and say, ‘We’ve got to separate, we’re here, as President Biden said’, she explained to them, ‘you are our enemy, and we’re not trying to hurt you, it’s just national security. And anything that we import from you, it makes us dependent on you, on national security grounds. We’re going to completely change our philosophy and our tariff policy, and we’re going to raise tariffs against you. Our objective is to make the living costs in America higher by producing at home, so the consumer price index is going to go way up’, and she said, ‘We’re not going to export anything to you, even if we export grain for you. That’s a national security risk because some of your grain may be to support a soldier and maybe one of your soldiers is going to just invade Los Angeles. Anything we export to you is potentially military, and we think that you’re going to invade us just like we thought Vietnam was going to invade us. And if we don’t stop them in Vietnam, they’re going to stop here. Well, if we don’t stop you in China, we’re going to have to fight you in Los Angeles. We’re going to completely cut our relations with you as much as possible, except to the extent that we can hurt you.’  

Well, she didn’t say those words, but that was my translation from the Chinese back into English, you could say. 

And if you read what she said, it’s utter viciousness. That means you can say goodbye to imports from China. There’s going to be a bonanza for monopolies in the United States. The Biden administration basically has the policy, computer technology has to be monopolized. Everything that basically we need, has to be even more monopolized than it is today. And we’re supporting monopolies and we’re calling it anti-monopoly because voters want us to call it anti-monopoly, but we’re really going to be anti-labor, pro-monopoly. That’s basically the Bidenomics. 

[00:35:01] Cotts: Thank you, Michael. Now we have Karl Sanchez from your Patreon group.  

[00:35:08] Hudson: Hi Karl.  

[00:35:09] Cotts: And I would love to bring him on camera if that’s possible.  

[00:35:13] Hudson: Sure. I’d like to see him.  

[00:35:14] Cotts: Yeah, I know you would. Commie John, can you make him a panelist?  

[00:35:21] Siener: Absolutely.  

[00:35:23] Karl Sanchez: Okay. 

 One of the questions I had was in relation to the Ecuadorian and Argentinian thing would that mean that all the Euro nations are colonists of the European Union?  

[00:35:36] Hudson: Wait, all the European nations are what?  

[00:35:39] Sanchez: They’d be colonial nations to the European Union because they’re all holding the euro and not their own domestic currency anymore. 

[00:35:46] Hudson: No. The euro was mis-structured basically. You wouldn’t call it colonial, it’s an artificial structure. The problem is that it is not really much of a union. For instance, Germany says it cannot run a domestic budget deficit. And the European rules say countries that use the euro, we’re all going to use the euro domestically for our money. They don’t use the German mark or the Italian lira.  

But the problem is they all agreed not to run a budget deficit of more than 3% of their GDP. Well, that’s not very much. America runs a much bigger deficit. And if you’re Italy and you really need the government to create more money and by running a deficit, the European Union prevents it. The way in which the euro was designed was to prevent European governments from Modern Monetary Theory, or to limit their ability to do anything under monetary theory. So, this is what bankrupted Greece. You’re seeing Germany today saying we have to balance the budget, we’re going to very, very sharply increase our military spending. We also have been subsidizing our consumers and small industry with the gas that we’re now paying six times as much to the United States as we were paying to Russia before. So we’re using a huge subsidy, we’re going to have to drastically cut back German spending, social programs. 

Well, this means that the German economy is going to shrink and shrink and shrink. And because its energy prices have been sextupled as a result of the sanctions that Germany’s agreed to put on Russia’s energy imports. And that Germany went along with America’s blowing up of the Nord Stream pipeline. 

You’re having German heavy industry go out of business. Well, not only does the steel making industry go out of business, because it needs energy in order to heat the steel, but without the steel, it’s not going to have much of an armaments industry. Its fertilizer industry and chemical companies have basically shrunken as a result of no gas coming in from Germany to make the fertilizer. 

So the result is that the economy is just, it’s the opposite of everything Keynes was talking about in increasing the demand to support economic growth. Germany’s economic philosophy has always been to shrink demand, and that’s because it was basically designed at the University of Chicago by anti-labor economists, essentially, specifically to prevent Europe from ever becoming an independent economic power that would be a rival to United States industry, United States agriculture, or the United States economy in any way at all. So you could say that Europe, led by Germany, has created intellectual suicide.  

And the question before about, well what does it mean to de-dollarize the economy? What it really means is to de-dollarize would be to have a different economic philosophy and a different philosophy of money creation. And the euro is a part of the American monetarist economic philosophy, the opposite of MMT. America’s at war against Europe and Ukraine. 

You’re having Europe not only shrinking, but becoming much more dependent on the United States for almost everything.  

[00:39:47] Sanchez: Right. That’s what I see. I see the candle burning at both ends in Europe, essentially. There’s a few nations that are bucking that system — Hungary and Austria, maybe Slovakia. 

There’s word that there’s a new gas field off of Romania and the Black Sea that might end up tying in with Turkey as an interesting gas hub for the Balkans. So Europe’s going to bifurcate into who knows how many different segments, but the logical thing seems to be for the Europeans to dump the euro, go back to their national currencies and go back to financing their own way, by using their treasuries as their national bank and developing in that manner… 

[00:40:32] Hudson: That would at least enable them to make a new beginning. Then they can join the BRICS.  

[00:40:37] Sanchez: Exactly. And that’s how, sort of, I see what’s happening with that geopolitically, is that we have, essentially, two geopolitical blocs, with the multipolar bloc versus the outlaw US empire bloc. And eventually the European members of that bloc, the latter bloc, are going to go ahead and drift away because they can’t make it. 

And their people will go ahead and revolt and change the governments and force them to go ahead and leave and join the multipolar bloc. At least that’s what I hope will happen over time here.  

[00:41:09] Hudson: Well, when Mr. Burrell says that Europe is the garden, he really implies the US is the gardener. 

So if Europe is the garden, America is the gardener and gets the crops. The “jungle” is welcoming them, but they don’t want to go into the jungle where all the energy and the new seed varieties are.  

[00:41:34] Sanchez: Yeah, it’s an interesting situation. You also recently had a podcast with Bill Black.  

[00:41:42] Hudson: Oh yes.  

[00:41:42] Sanchez: So I was wondering if you’d go ahead and repeat for our audience what you and Bill Black concluded was the controlling entity of the United States.  

[00:41:51] Hudson: I guess he’d say crime. Can you remind me of what… I mean, there were so many things. 

[00:41:57] Sanchez: It was the bankers control, the bankers control the government, or in other, words Wall Street is the government.  

[00:42:02] Hudson: That’s right. The problem when people say doesn’t the government control Wall Street? Bill and I are in agreement that it’s the financial class that controls the government. And America’s becoming a centrally planned economy but the planning has been moved out of Washington into Wall Street and other financial centers. 

And if you look at how the Federal Reserve was created in 1913, it was explicitly created by the banks to take monetary policy out of Washington. And in fact, the Treasury Secretary was not even permitted to be a member of the Federal Reserve Board. The Fed was shifted to the financial centers: New York, Boston, Philadelphia, Chicago, San Francisco, Denver. 

The whole idea was to put the commercial banks in control, not the Treasury. Basically what is it that steers an economy? It’s the creation of money and credit. Where is it going to be spent on? If you leave the allocation of credit to the bankers, then you’re going to leave forward planning to the bankers, and they become the planners. 

The problem is what do bankers create credit for? They don’t create credit for the production and consumption economy. They create mortgage credit to keep inflating the price of housing. They create credit to lend to private capital to buy out companies and take them private, load them down with debt, and leave them as bankrupt shells. 

None of that helps the economy. And there’s really nothing the government can do because they say, “Well, that’s private enterprise. We can’t really control the financial sector.” So when you… even though nominally, it was the government that named Alan Greenspan and his successors to be the head of the Federal Reserve, it was the banks, the donor class that told the government, here’s who we want you to nominate as the Federal Reserve head. 

Somebody who will let us do whatever we want. Someone who basically will acknowledge that crime is really part of the economy. Looting is part of the economy. As a matter of fact, crime is one of the biggest sectors, even though it’s not in GDP, it’s one of the biggest and certainly most profitable sectors. 

And we want you to let our free market financial predators make the laws and decide who gets the credit and who doesn’t get the credit. And that’s what happened.  

[00:44:44] Sanchez: Yeah, recently there was a very good article about the creating of heroin profits and cycling through the big banks. 

And the reason for the continuation of Afghanistan was to go ahead and continue that financial flow. One last item, like I suppose the people on January 6th that went to the Capitol should have gone to Wall Street. I think that would’ve probably been a much better effort on their part to go ahead and invade Wall Street versus the Capitol building. 

[00:45:18] Hudson: But it’s so amorphous. Where on earth do they go? It’s so amorphous. And you have to have an intellectual understanding of how the economy works as an overall social system to do that. And that’s not what’s taught in schools. I had worked on Wall Street before I took a PhD in economics and I think I got a C-plus in the money and banking course because the professor said I just didn’t get it. I didn’t agree with his idea of how banks worked. And I pointed out that I actually worked for a bank and here’s how they worked. And he said, I never heard of that idea. And I’m sure he never did hear of ideas that… If they can give the Nobel Prize to Paul Krugman who said that what he was told in school was just don’t talk about money. You know that not understanding how banks work is a precondition for academic appreciation.  

[00:46:22] Siener: Excellent. Our next question is from Tusker.  Tusker asks, if the US went to war with China over Taiwan, what impacts would this have on the global economy and how bad could it possibly get? 

[00:46:38] Hudson: There’s no way there’s going to be a war with Taiwan. The United States is trying to do what it can by pushing, trying to separate the Taiwanese, but it’s not going to happen. There’s very little that the United States can do. It’s muscle bound. The United States has only one weapon to use in any war. The hydrogen bomb. It has nothing in between your fist and the hydrogen bomb. There’s a whole gap. We’ve just seen that in the war in Ukraine. The United States doesn’t have an army to invade any other country anymore. You’re never going to have another Vietnam, because you’re never going to have a draft again. 

You’re hardly even going to have an Iraq or a Libya or a Syria, because they’re not going to be able to recruit terrorists to the extent that they did before. So, the Americans have atomic submarines. They have missiles, they have bombs, but there’s no way that they can fight with anything else. 

Well, what do you think Taiwan is going to do? Taiwan isn’t going to invade China and China’s not going to invade Taiwan. The United States is simply trying to stir up trouble, there. But it’s really not getting any takers. China’s very quickly consolidating its position and America has very little to offer Taiwan. 

China has much more to offer Taiwan and Taiwan already has very large investments in China. It wants to preserve these investments. It may have investments in the United States too, but it knows it’s much more secure with its investments in China. And it has everything to gain by a closer relationship with China and very little to gain as the United States economy becomes more protectionist.  

[00:48:38] Siener: All right, we’ve got a friend of the show here, Cheryl Van Epps.  

  

[00:48:42] Cheryl Van Epps: Okay, so we hear from Biden and AOC and others, that we are doing just fine. I am aware of the genuine progress indicator and I’m wondering what are the criteria for us to be able to say, yes, we’re failing as a state?  

[00:49:08] Hudson: Well, as Tonto said to the Lone Ranger, “What do you mean ‘we’ white man?” Who is the “we” they’re talking about? I think it’s the donor class they’re talking about. If you look at the Gallup Poll, most people say that they’re not feeling fine. I think if someone says to a poll taker they’re not feeling fine, they’re not feeling fine. So, they’re not part of the “we” that Biden and AOC are talking about. 

They’re heavily in debt. You’re having half of the American population doesn’t have any savings at all. They’re being squeezed by rising housing prices. Whether you’re a renter or a mortgage debtor at rising interest rates, you’re paying more. 

They’re squeezed by rising healthcare prices. They’re all of a sudden now having to pay the student loans. The monopolists are raising the prices for just about everything. A new word in the English language is ‘profit inflation,’ meaning that companies are raising the prices because they’re monopolies and just say, ‘hey, if we raise the prices, we’ll make bigger profits and we don’t have competition because the governments have stopped enforcing the anti-monopoly laws.’ 

So the ‘we’ they’re talking about are the monopolists, the bankers and the 10% that are the main donor class to the Democratic Party and to the Republican Party to be sure. 

[00:50:34] Van Epps: Thank you. I appreciate that. I’ll use that in my arguments.  

[00:50:39] Hudson: You know, just say “Gee, you’re so lucky to be so well-to-do, I bet you inherited a trust fund.”  

[00:50:47] Cotts: Michael, growing the GDP is not the same as doing better in the real economy. Why don’t you talk about the difference between the real economy and the economy measured by the GDP, I think that might help people.  

[00:51:03] Hudson: Well, as I said, there are two sectors to what’s called the economy. And people think that the economy and GDP is production of goods and services. But most of it is the FIRE sector — finance, insurance, and real estate are where the GDP grows. So for instance, interest charges that you pay, that’s considered a financial service. Fall behind in your payments and all of a sudden you have to pay a penalty rate that increases your charge from 19% a year to 29 or 30% a year. 

That’s counted as financial services. And I asked the Department of Commerce desk that produces this, well, why do you call it a financial service? And they said, well, it’s the banks that decide how much to charge for the penalty rate. So that’s an increase in the service of collecting this added penalty. 

And for instance when housing prices go up and people have to borrow more to buy a house, 7% of the GDP is homeowners imputed rent. And that means what would homeowners have to pay themselves as rent if instead of owning the homes, they rented it out.  

As housing prices go up, homeowners say, well, our apartment is worth, or home is worth, more and more and more and, their gain is considered part of GDP. And obviously that’s not really a product. No money changes hands. They don’t really get more of a service for their home. But that’s considered an increase in GDP. 

You have a lot of flooding recently. Flooding is great for GDP because you have to rebuild all of these homes that have been flooded. And that rebuilding the homes and replacing all of the destroyed products, that’s considered GDP. Just like crime, when you’re robbed or burgled and you have to replace something, that’s an increase in GDP. Military spending is an increase in GDP. 

So people actually look at what the composition of GDP is and analyze it. They say, wait a minute, when we have to pay higher healthcare, that’s 18% of GDP as I mentioned before, but our healthcare isn’t really as good as that of other countries. It’s better than England, of course, but if, you know, it’s other countries have much lower death rates, lower death at birth rates. Better health rates in Asia and other countries. 

So the more expensive healthcare becomes, the bigger GDP grows. And the more that housing prices rise, the more GDP grows. So really, the beneficiaries of GDP are the finance, insurance, and real estate sectors, not the industrial economy. The industrial portion of GDP is actually shrinking. But when consumers pay much more for monopoly goods, then GDP goes up. 

So it’s basically fictitious GDP. You could call it empty GDP. 

[00:54:19] Cotts: Thank you. Now we have a question here from Tim: How would the US going from 0% to 5% interest rates affect the upcoming labor strikes? For example, the UPS strikes. How can labor movements succeed under such hostile and austere environment? 

[00:54:47] Hudson: Well, the problem that labor faces isn’t really just the rise in interest rates. That affects primarily the financial sector more than labor. Labor has… for instance, the railroad strike and the iron fist of the Democratic party against labor unions. 

You saw when President Biden refused to support labor in the railroad strike. And under the Obama administration, Obama had promised a card check, and then he just did absolutely nothing. The Democratic Party is just as anti-labor as the Republican party, but they say they’re pro-labor thinking that’ll get the votes. 

And obviously the AFL-CIO is nothing like it was back in the 1930s. They used to be called labor fakers back then. The problem labor has is just… it’s within its own organization of its labor unions and the fact that you have a very hostile cabinet. For instance, the Transportation Secretary Buttigieg is about as anti-labor as you can possibly get. 

Not supporting more labor for the railroads, not supporting more labor for the airlines and transportation. And you can look at Buttigieg’s fight against labor and fight for the railroads, and that of Biden, as just an indication of how anti-labor… why labor really needs to not be the handmaiden of the Democratic Party and to take an independent position. 

  

[00:56:29] Siener: we’re going to go to John Shriner next. John asks, didn’t QE inflate assets, which was a major factor fostering our current asset debt bubbles? 

  

[00:56:41] Hudson: That was the announced objective because the banks were underwater. They’d made so many junk loans Obama, who started the process said, how are we going to increase housing prices so all these junk mortgages based on fictitious values, that the crooked banks have done, are going to make money? 

Instead of throwing the bankers in jail, Obama threw the victims of junk mortgages out of their homes. He said, let’s do to the junk mortgage victims who have way inflated mortgages what I did in Chicago. I went to the black neighborhoods and I said, let’s tear them all down. 

Let’s gentrify them and let’s make billions of dollars for the Pritzker family and for the Crown family. And he came in and he said, look, I’ve made more and more money for the wealthy people by tearing down black neighborhoods and Hispanic neighborhoods. I can do that for the country, what I did in Chicago. I can really just throw all of the black and Hispanic victims of redlining and junk mortgages out, and I can turn them over to Blackstone and BlackRock and to all of my biggest campaign contributors and make the economy and me richer. So basically, that’s what happened in a nutshell.  

Yes. Quantitative easing. Then said, well, instead of writing down the houses, the homes, to the realistic market prices that an honest appraisal would’ve gotten, that would require Obama to have thrown these bankers into jail. Andthe bankers were his campaign contributors. So he invited them to the White House and said, you know, boys, don’t listen to what I’m telling the voters. I’m the only guy standing between you and the pitchforks. That’s how he characterized his supporters — as the mob with pitchforks. He knew who his enemy was.  

He had the Federal Reserve vastly increase the credit to inflate housing prices so that the banks got out of the negative equity position that Citicorp, and Bank of America and other crooked banks had painted themselves into. And until people realize that we’re still in the Obama depression, there has been no recovery as a result of the asset price inflation. Inflating asset prices makes the GDP look bigger, but it makes everybody poor because they have to pay to have access to these assets. Not only access to housing assets, but access to stocks and bonds that pay… whose dividend yield is lower and lower and lower as asset prices go up.  

So, the result has been to impoverish the population. That was the objective of QE, and that is the objective of the Federal Reserve and was the objective of Obama and Biden. 

[00:59:39] Cotts: Thank you, Michael. Okay. We have a question from Angela Birtwell. She’s one of the volunteers at Real Progressives, and she asks us to read it:  

Would it be accurate to say that de-dollarization is when countries attempt to become less dependent on US dollars and become more self-sufficient in their own sovereign currency by maximizing their ability to deploy their own domestic goods and resources and reducing or limiting their dependency on foreign governments? How would this affect world trade? Would this mean there would be less global trade?  

[01:00:20] Hudson: Well, you’re right about your definition of de-dollarization. That’s a good definition. It will shift the direction of trade. The reason China has been spending so much effort and capital on the Belt and Road initiative is to increase trade within Asia, Africa, and Latin America. 

So, all of this de-dollarization will increase trade, but it will not be trade with the United States and Europe. It will be trade for the world “jungle.” Not for the world “garden.” 

[01:00:57] Cotts: Thank you. And we have a question from my sister-in-law,  

Ann Garneau, and I don’t think she can ask it on camera so I’m going to read it. And by the way, Ann was born in Canada. She’s an American citizen now, but she’s from Canada. She asks: are credit union banks that are owned by their depositors a valid alternative to the big private banks? 

[01:01:30] Hudson: Sure. That’s very good. I was a member of a credit union when I was on the Lower East Side. They’re only a small portion of the whole credit system, but yes, of course they’re a valid alternative. The problem is they don’t have anywhere near the amount of money that commercial banks have, or not even as much as community banks have. 

So it would have to be a really big credit union. But yes, of course they’re an alternative. That’s especially good for small borrowers. 

[01:02:03] Siener: All right, next up we have Steven Katz with a great question. Steven asks: Post-industrial capitalist states may be failing their people, but their rent seeking activities are expanding exponentially worldwide. How can we, in the belly of the beast stop this trend short of a revolution that’s nowhere in sight.  

[01:02:25] Hudson: I can’t figure out how. That’s why most of my work is with  foreign countries where something can actually be done to avoid post-industrialization. 

I do my best to work with American politicians and labor leaders and people who want to change things. But I don’t think there’s going to be much change in my lifetime. America is de-industrializing and I don’t see how it can possibly re-industrialize without a vast wipeout of consumer debt. 

And without a de-privatization of basic infrastructure and social needs. And it’s nowhere near doing that. Other countries can write down their debt. other countries can develop a social infrastructure to provide the healthcare and public education at subsidized rates. 

But it’s not going to be done in the United States. Afar as I can see. I don’t see any political party that is aimed for that. I’m doing my best to have it introduced into the debates in the 2024 election. And we’ll see what happens for that. But it’ll take pretty much a revolution to bring it about because the violence has always been on the side of the rich against the majority. 

If you look through Roman history, the book that I just published, the Collapse of Antiquity, is about how it’s the wealthy people that have not earned their money but just have privilege, income without working, that have used violence. Not the people who actually create wealth with their own labor. Not the people who support themselves. 

It’s always been the free lunchers that have been willing to fight violently. And that was the story of Rome. It’s a story of really all subsequent societies. 

[01:04:25] Siener: () () () Indeed. We have a question from Danny: Can you explain the Chinese price deflation and how, or if, the Chinese lack the ability to give money to local jurisdictions is affecting the economy and why?  

[01:04:40] Hudson: Well, I haven’t really studied the Chinese economy in detail. I’ve really focused almost all of my statistical studies on the West. That’s because I don’t speak Chinese. And it’s so complicated. Life is limited.  

There is a tension in China between the federal government and states and localities. The idea, that was basically a very good idea 30 years ago, was let a hundred flowers bloom. 

The Chinese central government said, let localities each try to develop in their own way. Let’s see who’s successful. Just as we’re letting private enterprise develop to see, you know, some kind of feedback so we can see who’s successful. And that’s certainly what has enabled Chinese technology and Chinese industry to grow. 

They’ve pretty much left that to the state localities. Well, the problem is that localities… China doesn’t have a revenue sharing plan between the federal government and the localities to a large extent, so that localities have been financing their budgets very largely by selling off land to developers. 

And that’s how China has been developing its enormous investment in real estate, which is what the Soviet Union was never able to do. The Soviet Union always had just an awful housing shortage, as did central Europe under Soviet domination. Families had to share housing. 

So, China was able to basically get apartments built. But what this did was strip away the assets of localities and turn it over to the privatizers who had bought the land from the localities. Well, the localities have the power to regain all of this by imposing a land tax. 

And if you impose a land tax… the reason housing prices have gone up in China is because the economy is more prosperous. People have more money in order to buy houses and to borrow from banks and private lenders to buy houses at a rising price just like they’re able to do here and in other countries. 

China has the ability to now tax this, because if it doesn’t tax the increase in land value, then the home buyer is going to use this rent to pay interest to the bank to buy the home whose land value is rising. So, that’s the political issue that is in China today. 

Are they going to increase the land tax if they basically… The essence is you need a land tax to be federal. So localities won’t play themselves against each other as you have American states playing against each other for tax cuts and special privileges. So the question is, China would have a national land tax with revenue sharing with the localities. 

Well, how would the people who bought the houses pay the land tax and the banks? Well, you can’t use the same rent to pay two different parties. Obviously, the banks would lose. The question is, would that really be such a bad idea?  That’s the kind of discussion that I have when I talk to my Chinese friends. 

[01:08:28] Cotts: Michael, we had some email questions for you. Um, this one is from John Bloomfield: How would you propose a debt jubilee be implemented in the US? Who would bear the loss of equity? Given that US private debt consists of around 70% mortgage debt, 11% student debt, 9% auto loan, 6% credit card. Student debt is fundamentally government debt, so no equity problems there, but housing, auto and credit card loans are more complex. Would one need to consider how long such debt has been outstanding? In other words, one year housing, mortgage, does the mortgagee keep the house. That’s from John Bloomfield.  

[01:09:19] Hudson: Well, if you read Plutarch’s Lives, Plutarch wrote the Life of Agis and of Cleomenes, who were the kings of Sparta in the third century, BC. 

And Sparta’s kings decided that finally they had to cancel the debts because more and more Spartans were losing their land to the oligarchy. He had a plan to cancel the debts of the people.  

But one of the officials said, well, this is great. You really want to cancel the debts on real estate, because I bought a lot of real estate on credit! If you were to cancel the debts in the United States today, most of the debt, as you just pointed out correctly, is owed, is mortgage debt. You would, if you canceled the debt of the absentee owners, you would make Donald Trump and the real estate owners the wealthiest people in the country. You don’t want to cancel commercial debts or business debts among themselves. 

For 2000 years in the Bronze Age, the debts that were canceled were personal debts, agrarian debts, not business debts, and certainly not real estate debts. You don’t want to enrich and create a new landlord class that suddenly that’s bought… You can buy a hundred million dollar building on Park Avenue with one dollar down and borrow a hundred million. 

Well, you don’t want to erase the debt and suddenly give this man for one dollar a hundred million dollar building free. You want to leave that debt in place. And when you do cancel the debts, fortunately, all the banks will be basically wiped out. It’s a debt cancellation. And so the government will take them over and the government will basically say, well, okay. You don’t have the absentee owner owning the building and the property any longer. The debt cancellation would have to go hand in hand with the land tax.  

The debts that you want to cancel are the debts that are owned by individuals, student debts at the top. Credit card debt. Automobile loans. Personal debts. You want to lower the debt overhead on the wage-earning class. And the debt overhead of the corporate class will, accompanied by the government, will recapture the economic rent that is paid to the banks for this debt will now be paid to the government as taxes. 

So a debt cancellation has to go hand in hand with a government recovery of this financialized rent as a form of a rent tax. So, the rent that was formerly paid to the banks as debt service will now be paid to the government — state and local government as the tax base. 

This is what Adam Smith. John Stewart Mill… the entire 19th century was fought over getting rid of the landlord class and basically promoting owner-occupied buildings. That’s the exact opposite direction in which the United States has been going in since the Obama administration, which is… the Democrats say, we want to turn America into a landlord economy away from a home ownership economy. 

The way to cancel this is by a debt cancellation bank replacing the commercial banks that’ll no longer have the mortgage interest to back the deposits with the government taking them over as a public utility making banks the kind of public utility that was expected in the 19th century. And in fact, that is what China has done, which has made China so successful in its use of credit creation. In comparison to what the de-industrializing West has done.  

I compressed a lot of that, and I know it’s hard to hear this, just saying it in a couple of sentences. It almost requires thinking about it for six months and rewiring the brain to get through it. And all I can do, if you want an elaboration is to read the transcriptions of the interviews that I’ve done that are on my website. 

And I’ve spelled out these questions in my articles. I spelled it out in The Destiny of Civilization, a book that I wrote last year. And in Killing the Host. My books spell out the answer in detail to what I’ve compressed.  

[01:14:12] Cotts: Thank you, Michael. I’m going to bring Flo on again, uh, because she has several more questions. Hello Flo. 

[01:14:21] Schade: Hello.  

Back again. I fired off a bunch of questions in the Q&A there, but I’ll try and summarize it. It’s kind of along the lines of some stuff that I saw in the chat too. There was a bit of an argument about the Federal Reserve and its role and its significance. And it got me thinking about the relationship between the state regulated banks and financial institutions and then maybe like private capital or shadow banking or these sorts of quasi financial agents, and what should we take away or how should we understand that dynamic. Or what are the relevant considerations there? 

Because you know, it seems like there’s always a sort of bifurcation in these discussions about class power, you know, who’s in charge, and then a more technocratic understanding of what’s actually happening with money. So what’s your take on the relationship there and how should we understand it? 

[01:15:33] Hudson: The whole shadow banking issue is discussed a lot by Randy Wray and my Levy Institute colleagues. It’s so technical. Anybody who is a creditor could be called a shadow banker because a credit system proliferates. But basically it’s the large banks that provide credit to brokerage firms, to all sorts of financial operators who try to make money with the credit they get. And they pay the large banks and make a profit by exploiting their customers more than they’re being exploited by the large credit creating banks.  

[01:16:12] Schade: You said that the Treasury has been taken over by Wall Street, and that kind of makes me think about it too, because I hear on the MMT side a lot, you know, banks are federally chartered entities, so they’re under the strict sort of control of the government. But there seems to be like a tension there of like, who’s really got the power. 

[01:16:34] Hudson: If you go to the Hollywood movies, you know about local crime bosses. The crime bosses are all regulated by the police. And the policeman always works for the crime family. I mean, that’s a typical Hollywood plot. Anybody can get a charter. 

You pay the price of the charter, and if you cheat somebody of a million dollars, you actually have to pay a $10 fine. So yes, there are checks and balances. For every million you cheat, you steal, or exploit, or foreclose on, you pay maybe a $10 fine. It’s a cost of doing business. 

The charter is a kind of license to do whatever you want to do, as long as the regulator is a member of your crime family. And in America, the philosophy is every business gets to name the regulator of the business. They all get to have their brothers – or, you know, ideological relative – as their regulator. 

So the regulation really doesn’t work here. If it worked, you wouldn’t have the Democratic or the Republican parties the way they were. You’d have a real government. So, you talked about shadow banking. You have a shadow government. And it’s the shadow government of the financially wealthy oligarchy that runs the country. 

If you think of America as an oligarchy, not a democracy, you’ll begin to break the sort of linguistic Orwellian doublethink that the papers use.  

[01:18:06] Schade: I’ll just end on this because I know we’re running out of time but it reminds me. You know, there is a tension we’re trying to… a lot of the work at Real Progressives is trying to look into bridging gaps or misunderstandings between Marxists and a more MMT-informed understanding of money. 

[01:18:26] Hudson: Wait, did you say Marxists? What is the misunderstanding of Marxists? Could you elaborate?  

[01:18:33] Schade: Well, that’s actually what I was going to ask you. Like, what do you think a lot of modern Marxists get wrong about money? Because there are still a few that are more pro-UBI. I remember a couple years ago going to a fight-back educational and they were like, ‘there is no magic money tree, blah, blah, blah.’ But it seems like sometimes in the MMT crowd what’s missing is the analysis of class power and power dynamics.  

[01:19:02] Hudson: it’s very funny you should say that because they’re all followers of Hyman Minsky, and Hyman Minsky was a Marxist. So he told me,  and so his family have told me. 

There’s one common denominator that I’ve found among almost all the Marxists. They hate what Marx wrote about in Volume Two and Volume Three. They call themselves Marxists, but they only get through Volume One. They think that what Marxism is: employers exploit wage labor by selling their product at a higher price than they pay labor. All that’s correct. And that’s why Marx wrote Volume One of Capital.  

But then in volume Two and Three of Capital, he said, this is part of the overall problem of the economy. What makes capitalism revolutionary, Marx wrote, is that it’s getting rid of the carryover of feudalism. The one thing industrial capitalism did that’s idealist is getting rid of the landlord class by taxing away land rent. And that’s why the very first volume, the first plank of the Communist Manifesto nationalized the land and the land rent. The land rent should be the supply of the government.  

In Volume Three of Capital, Marx talked about the financial sector. He said finance is extraneous to the economy. It’s not part of the production and consumption economy that I’m talking about in Volume One, between labor and industrial capital. It’s the privilege, it’s the assets and property in the form of financial claims as well as property ownership. And this is institutional character superimposed on the economy. And finance and compound interest grows exponentially with a power of its own. And he explained all of this more than any one other writer of his time. He explained the dynamics of interest-bearing debt.  

Now, very often when I’ve gone to China and when Marxist friends of mine, like David Harvey, have gone to China, we’ve gone to Marxist conferences and  we talked about Volume Two and Three of Capital, you could see the discomfort that people find.  

When I was like 10 years old, around 1950, I knew almost every major socialist leader in the country. Certainly in Chicago. I knew them all. And I’d go over to the house and while they were all talking, I would sort of sit at the bookcase and I’d look at the books that I was familiar with, like the three volume Charles Kerr version of Capital. 

And I’d always open them all and I’d notice Volumes Two and Three had never been opened or read. So you could say there are two kinds of Marxists. There are Volume One Marxists, that really call themselves socialists, but they haven’t really read Marx. And there are Volume Two and Three Marxists that look at the economy as an overall political economic social system. 

Marx developed the systems analysis of capitalism, and he saw the way in which industrial capitalism was revolutionary. It solved the problem with the landlords. It was solving the problem with the banks in Germany by industrializing banks and using credit to finance industry, not for usury type banking that you had in England. 

And he said now that those two problems have been solved, there’s one thing that the 1848 bourgeois revolutions did not solve. And that’s the labor-capital problem. And I’m writing Volume One to show the labor capital problem that you’re, even after you solve, you get rid of the landlords, you get rid of the predatory bankers, you still have to have a fair employment situation between labor and capital. And that was Marx’s contribution that he emphasized in contrast to what other people were emphasizing.  

Well it’s very hard to get Marxists to look at the financial aspects of the economy. By the time I went to work on Wall Street in 1960, throughout the sixties, the leading economists on Wall Street were all Marxists. And we used to get together once or more often a month. And we would be talking about what’s happening financially with the US economy, and, very often we would refer to Volume Three of Capital. You know, ‘what did Marx say about this?’ And, you know, we sort of broke out laughing. 

Isn’t it funny that here we are working for the big banks and the big investment banks and other companies, and we’re talking about Marx, and we understand how the economy works? Because if we had an economics degree, we wouldn’t understand how the economy works. And that’s why they hired us Marxists, to explain to them how the economy works. Not the others.  

But, the people who call themselves Marxists don’t talk about what we’re talking about, how the financial system works, how rent extraction works, how rent is paid out into interest. You know, we’re sort of a dying breed of old Marxists.  

I learned Marxism from my father and from my mentor, Terrence McCarthy, who learned from his grandfather. So we’re all basically Elizabethan era. Or no, Victorian, I’m sorry — Victorian era Marxists. We’re all throwbacks.  

How do you get people to read Marx’s Theories of Surplus Value, which was really the first history of economics. When I taught national income analysis at the New School in the seventies, I used Marx’s Theories of Surplus Value as my textbook, because Marx explained rent, interest, debt dynamics. Explained all of this.  

You really have to look at how Marx was part of the whole 19th century economic ideological revolution in order to understand them. You can’t just understand how the economy works by reading Volume One. You not only have to read Volume Two and Three of Capital, but all three volumes of Marx’s Theories of Surplus Value to see what Adam Smith and Ricardo and Malthus and John Stewart Mill and all the other people that Marx analyzes. You have to understand, uh, the whole mentality of the 19th century as a reform movement. 

Certainly Minsky did. His children told me that Minsky told them to read Marx. And obviously the MMTers have not emphasized that because they want to be more widely expressed. And, when you say Marxism in America, people think that it’s something quite different than what Marx meant.  

[01:26:00] Cotts: Absolutely. Michael, thank you. Would you just tell people… you know, you spoke about debt and debt jubilees. Would you tell us why you write about debt so much? Tell people about the book you’re working on now and the other volumes related.  

  

[01:26:19] Hudson: When I decided to become an economist, I talked with my… it was actually my Marxist friends, and we all saw that debt was the big problem that was going to trouble society. We were all ‘Volume Three Marxists’ And I went into Wall Street to understand how banking and debt worked. And, and I worked for UNITAR [United Nations Institute for Training and Research] in the late 1970s writing about third world debt. Because when I worked at Chase Manhattan, one of my first jobs was to estimate whether Argentina and Brazil and Chile could pay their debt and how much they could afford to borrow. 

And of course, they couldn’t afford to borrow much more. They were already loaned up. And I forecast that there was going to be a third world debt crisis. That was in 1979. And that was at a meeting that Unitar had in Mexico City. There was a riot at the meeting and I realized that this was really controversial and I decided to begin writing a history of debt. 

As I began to write the history of debt, I found that there were debt cancellations for thousands of years in Ancient Near East, but hardly anybody had written about it. So I got associated with Harvard for 25 years with the Peabody Museum, which is the archeology department. And we set to work organizing a series of six colloquia to invite the leading Bronze Age and ancient historians from Sumer, Babylonia, Iran, Egypt, all of the other major countries, to write how did debt and money begin? How did economic account keeping begin? How did land tenure begin? And urbanization, privatization? How was labor organized? And we, these colloquia, we’ve now got Assyriology profession and the Egyptology profession, agreeing with the analysis. 

Yes, there really were debt cancellations. Debt cancellations really kept the economy from polarizing. And I decided to write a history of debt. And the first volume was ...and forgive them their debts. And that’s the volume of debt in the Bronze Age down through Judaism. And academic articles that are the basis for the Colloquium will be published later this year. I’m finally doing the proofreading of the book now. My second volume of the history of debt was on Greece and Rome. That was The Collapse of Antiquity. That was published a few months ago. Martin Wolf in the Financial Times cited it on his summer reading list. He’d listed …and forgive them their debts as one of his books of the year for the Financial Times a few years ago. And I’m now working on the third volume of debt from the medieval Europe down to World War I. Down through the 19th century on how the church came under the Roman papacy…  

The Roman papacy had a problem: how do we get rid of all those Christians, and turn life over to ourselves and the banks? And so the Roman papacy reversed all of the church teachings against usury and basically set out to make a deal with the Norman conquerors, warlords that they would bless. The invader of England, William the Conqueror… if William would pay tribute to Rome, they would back the conquerors of southern Italy and Sicily. And immediately, once they backed the Norman invaders, they said, now we have to destroy the center of Christianity, Constantinople. We have to get rid of it. And that was the Crusades. And that ended up as part of the looting of Constantinople.  

Most people don’t realize most of the Crusades were against other Christian countries, against Christian countries that did not want to pay tribute to the Roman papacies. And all of the war against southern France was one crusade. They kept trying to mount a crusade against Germany — the Holy Roman emperors that didn’t want to pay tribute to Rome.  

All of these wars cost money. So Rome went into an alliance with bankers from northern Italy and the trans-alpine region, and began to tax all of the churches throughout that part of Christianity controlled by the papacy to force them to borrow at very high interest rates from the bankers that were sponsored by the papacy. And instead of excommunicating the bankers who charged usury, the popes excommunicated people who would not pay usury to the bankers. 

All of this has been erased from history. It was all written by the historians at the time, Matthew Paris and other authors who wrote the annals and the histories of the time. But it’s been omitted.  

And most people have the idea, ‘Well, wait a minute. Weren’t the Jews the usurers? Isn’t that why they were expelled from England and France?’ Well, the Jews were expelled from England and France because they were not usurers. Because they’d been driven out of business by the Italian bankers who didn’t want competition basically from Jewish merchants at all. They wanted to monopolize it. And by 1515, you had the bankers rise from the outskirts of society – the people who were banned under Christianity – to the papacy.  

It was a Medici who became Pope Leo the 10th, who had a great papal meeting where essentially he erased the whole biblical teaching of usury and the churchmen said, ‘We’re going to have two kinds of interest. There’s usury, that’s money you pay to the Jews, and there’s interest, that you pay to the Christians, and, well, you pay much more money to the Christians, as late fees and interest, than you pay to the Jewish lenders. That’s why we don’t want Jewish money lenders, because they’re underselling our main supporters, our donor class, our bankers.’ And so, that shaped the whole… there was a crusade that shaped the whole financialization of economies and the whole attack of Christianity that became the Catholic Church. 

[01:33:19] Cotts: Thank you. Michael. Will you tell people where to find your work? Tell them about your Patreon.  

[01:33:26] Hudson: Well, uh, they can go to my website [Michael-hudson.com] which lists the Patreon site. they can read all the articles I’ve written on the website. You can go to Amazon or any of the other distributors, probably Abe’s book and others. [bookshop.org/shop/realprogressives] 

You can buy my books. They’re all in print right now. The prices are going to go up because Amazon… I told you about the Biden administration has just told companies, ‘Use your monopoly power now, before the election.’ Amazon has just increased its take, its commission that insists from 20% to 40%. That means that all the publishers in America, in order to break even, have to raise their book prices on hardbacks and paperbacks in order to pay Amazon the monopoly price that Biden has said, ‘Do it now while I’m still president and can protect you. How much are you going to contribute to my campaign?’ So, buy them in a hurry before Biden gives them enough power to raise the discount rate 50%.  

[01:34:35] Cotts: One of our favorite MMT economists is Fadhel Kaboub, who’s part of the Modern Money Network. He talks a lot about abusive monopoly price setting. Also about the global South, about all those issues of sovereignty and lack of sovereignty. I urge people to look up his work. Also, I think we have 10 interviews with him on Macro N Cheese.  

[01:35:03] Hudson: Fadhel has just left academia to join UNCTAD. He’s gone to where he’s in a great position now to really be a major player in how the world economy is evolving. 

[01:35:18] Cotts: He’s living in Addis Ababa. I’m so glad that people are finally recognizing his brilliance. It’s wonderful.  

[01:35:28] Hudson: Yes. He’s one of our MMT graduates.  

[01:35:31] Cotts: Great. John, do you want to say goodbye to everyone.  

[01:35:39] Siener: I want to thank everybody. We always have the greatest attendees at these things. Everybody’s so smart. Great questions. Thanks all for coming in.  

[01:35:47] Hudson: How many did we have?  

[01:35:49] Siener: I think at one point we had about 50-ish people live, which is not bad for a Thursday afternoon for the middle of the day. People are at work. It’s really good. And a big thank you to Michael Hudson. Man, you are an animal. We’ve been going for over two hours. We’re so grateful for your generosity, man. And your knowledge. 

[01:36:11] Cotts: When Steve first asked Michael if we could interview him for Macro N Cheese, Michael said, I don’t do interviews on shows that don’t have transcripts. Well, you don’t know this, Michael — we already had about 80 weeks of Macro N Cheese episodes. And we scrambled to create transcripts for all of them. Since then we have a transcript with every episode. And it’s all thanks to you.  

[01:36:44] Hudson: Well, I hope I didn’t say anything offensive.   

[01:36:48] Cotts: I hope you did.  

[01:36:49] Siener: Yeah, I was hoping you would too. But, again, check out our website, real progressives.org. The Macro N Cheese podcast drops every Saturday morning at 8 AM Eastern. If you feel like throwing us a few bucks to help us keep getting this content out to you, it’s patreon.com/real progressives. Or go to our website and there’s a PayPal link. Or sign up to come volunteer and take my job.  

Michael, thank you for your time. Somebody cue the music because we are out of here.